Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

QE Tapering Lessons for 2014

Interest-Rates / Quantitative Easing Dec 31, 2013 - 10:51 AM GMT

By: Matt_Machaj

Interest-Rates

In the last Market Overviews (and also to a considerable extent in the last several Premium Updates) we have discussed in detail differences between tapering and tightening. As we have stated, a personal change of the Fed's chairman will not change the essence of its policy. Now we hear that some form of tapering will indeed happen. Despite this we have three varied tools to consider about some forms of backing out from its expansive policies:


  • Federal funds rate
  • Government bond purchases
  • MBS purchases

The history since 2007 tells us that the short-term interest rate is lying safely at the bottom. All Fed's press releases since the end of 2008 indicate to us that they will stay that way. Since Fed's officials finally got bored with giving dates that are constantly prolonged, we finally received some precision: interest rate hikes may come if the unemployment is below 6,5 percent, and/or the official inflation rate is over 2 percent. Let us emphasizes again the word "may". Those conditions are not here, and even if they were, still it does not automatically mean that the hikes would happen.

Before the interest rates are raised, the asset purchases tool will be settled. First, let's contemplate government securities purchases. Will they be permanently reversed? With all those nice programs extended and initiated by president Obama, we doubt that. The history since 2009 tells us that purchases were slowed down, but not reversed. The public spending tells us that they probably won't be completely reversed in the near future. The public debt tells us that they will not be stopped. One thing that could indicate decreases of government bond holdings are yields on government bonds. At least this was the case until May of 2013. In the last testimony of the Fed we learned that purchases are to be slowed down from 45 billion to 40 billion. Not a sparkling change, really.

In terms of bond returns the policy of boosting government bonds holdings has been a major "success". The monetary pumping worked - the newly created money went indirectly into the Treasury. For the 10-year government bonds, yields were brought down from 5 percent in 2009 to 2.6 percent in May of 2013. Then the reversal in yields happened, probably because of possible "tapering" hanging in the air. Under these circumstances we are back at levels similar to mid-2011. And in mid-2011 the Fed was holding on to government assets. Since the yields of over 3 percent are back we do not expect to see major shifts in this part of Fed activity, even if number "5" is to be seen somewhere (that is a difference between 45 and 40 billion of asset purchases).

Another likely candidate for tapering were asset purchase operations performed on MBS. Here the Fed decided to buy 35 billion each month instead of the previously declared 40, to thus slightly reduce the holdings. Yet as all Fed representatives signaled to us, these are not to be major changes but minor adjustments.

But, most importantly, this will not mean the reversal of the easy money policy. Easy monetary policy is still the only option on the table. All that is being debated by Fed's officials are the ways and means of easy monetary policy. Not the essence.

Thank you.

Summing up, if the Fed continues the QE program and it is communicated directly, gold is likely to move higher within a few months. The full version of this report includes our analysis of 8 different scenarios (as you can see on the above table). We recommend that you stay prepared almost no matter what the Fed does by reading the entire Market Overview report. You can sign up here.

Thank you.

 

Matt Machaj, PhD

Sunshine Profits‘ Contributing Author

Gold Market Overview at SunshineProfits.com

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Matt Machaj, PhD and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matt Machaj, PhD and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Matt Machaj, PhD is not a Registered Securities Advisor. By reading Matt Machaj’s, PhD reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Matt Machaj, PhD, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in